No Insider Trading, Market Manipulation and Misleading Ads – Malta’s New Crypto Law

Malta has enacted three bills into law on Wednesday that are meant to create a clear regulatory framework that will enable the establishment of cryptocurrency businesses on the island. A number of issues that can have an impact on traders and exchanges pop up when examining the new regulations. A prohibition on insider trading, market manipulation and misleading ads or ICO whitepapers.

New Definitions

The Maltese legislatures have gone out of their way to ensure they won’t use any terms that might appear to put them in odds with current European sentiment. So they don’t refer to Bitcoin, Cryptocurrency, ICO or anything that might ring familiar to anyone with a negative perception of these. Instead they make up new definitions to govern the “Distributed Ledger Technology” industry.

“DLT asset” means a virtual token; a virtual financial asset; electronic money; or a financial instrument, that is intrinsically dependent on, or utilises, Distributed Ledger Technology. “DLT exchange” means any trading and, or exchange platform or facility, on which any form of DLT asset may be transacted.

A”virtual financial asset” or “VFA” means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not – electronic money; a financial instrument; or a virtual token. An “initial VFA offering” means a method of raising funds whereby an issuer is issuing virtual financial assets and is offering them in exchange for funds. “VFA exchange” means a DLT exchange operating on which only virtual financial assets may be transacted.

The purpose of the new definitions is to create categories for crypto businesses which want to establish themselves in Malta (and willing to pay fees and hire locals to do so). So expect to soon see some exchanges promoting themselves as a “Certified DLT Exchange” or “Registered VFA Platform” or a variation on these terms based on the new Maltese definitions.

Penalties and Liabilities

The Maltese law also touches a number of points of contention within the cryptocurrency community. These include the prohibition of insider trading, market manipulation and misleading whitepapers, practices that exchanges and ICOs have been accused of at times.

“Insider dealing,” recommending or inducing another person to engage in insider dealing, shall constitute an offence when committed intentionally. It is defined as when a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, virtual financial assets to which that information relates.

“Market manipulation,” shall constitute an offence in severe cases or when committed intentionally. It is defined as the manipulation or attempted manipulation of a virtual financial asset or a benchmark through the employment of an abusive strategy that may be carried out by any available means of trading or other means.

Regarding civil liability for misstatements in an ICO whitepaper, advertisements and website, the law states that: The issuer shall be liable for damages sustained by a person as a direct consequence of such person having bought virtual financial assets, either as part of an initial VFA offering by such issuer or on a DLT exchange, on the basis of information deemed to be untrue…misleading or otherwise inaccurate or inconsistent, either wilfully or in consequence of gross negligence. And it is also considered an offence.

And the law also seems to have serious deterrent against infractions beyond just administrative penalties or losing a license. A person guilty of an offence shall be liable on conviction to a fine of up to fifteen million euro (€15,000,000) or up to three times the profits made or losses avoided by virtue of the offence, whichever is the greater, or to imprisonment for a term not exceeding six years, or both such fine and imprisonment.

Can the law really protect against different forms of market abuse? Share your thoughts in the comments section below.

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